Sunday, January 29, 2006

L8r

One of the occupational hazards of being a one-man band is that, in doing all the heavy lifting required, I might give myself a hernia - which I literally, actually have done. So, I'll be offline for a few days, as I have some structural weaknesses repaired. See you when I see you.

Thursday, January 26, 2006

Goodnight Vienna

It's been a great couple of days here in Vienna, with a lot of thought-provoking presentations and interesting new contacts with whom I look forward to communicating in future. It's also a great and beautiful city, though I think I speak for natives and visitors alike when I say that we could have done without the -12C nights. I guess it's safe to say that a lot of Europeans probably regard it as something of a backwater (culturally speaking this would be a mistake), though I'm now thinking maybe it's actually highly representative of Europe's future. If you drive around central London, for example, you see signs directing you to Knightsbridge, the City, or Tottenham, rather than Norwich, Birmingham, or Bournemouth, let alone Paris, Brussels or Amsterdam. In central Vienna, you see signs pointing you to Bratislava, Prague and Budapest.

My Viennese friends, with whom I had dinner last night (and who, incidentally, have had free cable from UPC for the past 18 months because the company never bothered to shut off their service when they cancelled it), reminded me (not that they needed to) that Austria was once far larger and more influential, and that modern Austrians have had to accept the fact that all this is history, yet they continue to look East, maybe out of nostalgia, or perhaps out of a realisation that much of their future will be influenced by the winds of change blowing from that direction.

To my mind, this conference begged similar questions about Europe's future position on the world stage and was similarly obsessed with the East. I wish I could count the number of times presenters cited FTTH in Korea and Japan, not only as enviable examples of how a competitive market can function in the favour of consumers, but also as examples of how huge, cheap bandwidth can feed new hardware and application development. More pointedly, the repeated discussion of correlation between broadband access speeds, market competition levels, and economic development prospects seems to pose some uncomfortable questions for a Europe struggling with its ability to innovate and transform its constituent economies to deal with the waves of change to come. I know it's only January, but I think it seems pretty clear that 2006 is the year when broadband becomes a highly visible political issue.

Now in my final session before heading to the airport - a review of regulation. T-Com's head of regulatory affairs has been setting out DT's rationale for asking for regulatory relief on fiber investment. Nigel Hickson from the DTI in the UK has followed by stating unequivocally the view of DTI that it is 100% opposed to DT's stance, claiming that it would take regulation back to the 1980s and 90s, and that the benefits of competition are clear even to visitors from other planets (his words, not mine). The air is so thick you could cut it with a knife, and I expect them to scratch each others' eyes out after the session.

T-Com's regulatory head has also denied that DT has actually received any direct approach for third-party participation (referring to press reports of a EUR500m offer of assistance from United Internet).

Malcolm Matson of the OPLAN Foundation has just said that, broadly speaking, the EU has taken a policy formulation approach of consulting first about disruptive technologies with those most likely to be disrupted. The vested interests argue for a gradualist approach, and also assume that they will remain part of the picture in the future, which is inconsistent with the lessons of history. The long term investment appetite is there to support projects and business models which look and smell like commercial real estate projects. Those might not be the models which the incumbents seek to defend. By defending the old, we may be mortgaging our futures.

UPDATE: I tried to update this post during the session, but got a message that Blogger was down for maintenance - such is the price of relying on web-based services, but whaddaya want for free? Now at Vienna Airport with free WiFi. In the second part of the regulation session there was an account of the EU meeting with industry players on Tuesday in Brussels to take stock of the EU Regulatory Framework. The scene painted was one in which the presiding Commissioner opened the floor to comments, and was greeted by a torrent of complaints from one incumbent after another, with little pause for breath or alternative viewpoints. The consensus of attendees at this meeting was that BT stood out as a carrier with a pragmatic view of regulation and how to adapt to its constraints. There was some speculation as to whether this is connected to the OFCOM Strategic Review and BT's OpenReach compromise. Malcolm Matson stated that he thought it arose from a recognition from early on that the world was going IP - i.e., it is in BT's DNA. My meeting with Peter Cochrane (former BT CTO) a couple of weeks back suggests that maybe this DNA is no longer quite so pure as it once might have been, but it does indeed survive in some form. Maybe it's a function of BT being somewhat less structurally complex than others by virtue of not owning a mobile network, and thus less prone to muddled, conflicted and desperate thinking (someone told me recently that a certain executive of a European fixed line operator stated at a recent conference that, due to his plans for a FMC product launch, 2006 would be the year when "we take out our mobile sister company." How's that for an "integrated operator strategy"?)

The current session is an interesting mix. Jonatan Svarvasson from Reyjavik Energy presented his case study, of a multi-utility which tried powerline and dropped it in favor of fiber, and tried end-to-end service provision and abandoned it in favor of being an enabler. (The company just expanded into its fifth area of operation, sewage services, so take heart telcos, your business still ranks above some others in attractiveness!) He also highlighted a central dilemma for companies answerable to the financial markets - a 25-year depreciation period (though de facto asset life is much longer) and a 6 - 7 year total project period - parameters familiar to utility investors, but maybe not telcos (unless of course telcos recast themselves as utilities).

Toivo Praakel of Elion in Estonia presented the incumbent viewpoint, which was, "If we don't do it first, the municipalities and utilities will." He also pointed out the apparent contradictions inherent in Estonia - GDP per capita of only EUR6000, post-tax average monthly earnings of EUR400, but 6% of GDP expended on telecom services and 4% on IT services (indeed Elion's 5Mbps internet/voice/TV product costs EUR30 per month), 90% of consumer financial transactions are electronic, and the Estonian government no longer uses paper. He basically made the case that given this background, in Estonia exclusion from access to the internet genuinely constitutes social and economic exclusion.

Helmut Leopold outlined Telekom Austria's pilot project in the Carinthia region, which is committed to deliver the potential for 10Mbps access for every home in the region by 2008, and will incorporate the local media creation approach pioneered in Engerwitzdorf.

Herman Wagter from Citynet gets the quote of the day award for his presentation: "The infrastructure owner must not be allowed to hold economic growth hostage in the interest of shareholder value." He also challenged Viviane Reding's view that infrastructure based competition is a rational approach. Unfortunately, she had already left for another appearance elsewhere.

Currently listening to the EU Information Society Commissioner Viviane Reding, whose speech contains many of the themes covered a couple of days back in Munich and Berlin. ICT in Europe accounts for 6% of GDP, but its contribution to growth is 25%, and to productivity gains is 40%. Infrastructure is the focus for 2006, etc. A lot of interesting views, and a fair degree of optimism. Looking around me in the audience, I can't see anyone else using the internet.

Wednesday, January 25, 2006

Late night fiber update

Well, all I can say after day one of this conference is that, albeit on a smaller scale, there is a sense of buzz around the fiber issue which I can only liken to the emerging buzz around VoIP 2 - 3 years ago. There are 700 or so of us here in a freezing Vienna, and the sessions are punctuated by rampant networking and exchanges of contact details. The afternoon sessions were interesting. My after-lunch slot, moderated by the seemingly omnipresent and inexhaustible Vladimir Prodanovic, also included Stephen Petheram, Content Marketing Manager, EMEA, for Microsoft (who spoke at length about the need to incorporate social/interactive elements into IPTV), and Michael Westphal, who did a very impressive demonstration of his Shift TV. My presentation was about decentralized media, online gaming, and how "gaming" could co-opt and absorb other forms of media consumption/production to create a variety of new markets and media forms.

Once again, as is often the case with these industry conferences full of decision-makers and strategy/development people, I was somewhat shocked at the lack of familiarity with things which I take for granted, or assume to be common knowledge in an industry which has underperformed as savagely as telecom. Out of a breakout audience of around 100, only three claimed to be consumers of online gaming, maybe 1/5 claimed to be familiar with P2P software (as users), and my example of a Fark PhotoShop contest (which I assumed was a fairly well-known example of the re-mix/modify ethos), claimed only one person who was familiar with the site. I don't say this as criticism of the people involved, but rather to illustrate the point I made at the beginning of my presentation - that I (and a lot of investors I speak with) am not convinced that decision-makers in the industry actually grasp what is happening with "consumers," despite seemingly endless coverage of the "Long Tail" phenomenon.

Lastly, I attended a breakout session on the "Digital Divide" issue, which included presenters from CDC, the EU DG Infosoc, and the OECD. I was most intrigued by the presentation from Taylor Reynolds of the OECD, who included "bit caps" as a factor in the creation of a Digital Divide of a different kind. In other words (my interpretation), just having a broadband connection is not enough to ensure equality of access, when some subscribers are saddled with crippling bandwidth caps (the most extreme case cited was Versatel Belgium at 500MB per month!) and costly bandwidth top-up charges.

Bell Canada's representative just gave a fairly technical presentation about the architecture of BCE's G-PON deployments. The most telling statement was that when he first joined the company 15 years ago, his initial assignment was in FTTH. What's different now is that the technology works and all the supporting factors are in place. NTT's Hiromichi Shinohara has followed, and again the audience gasped at the stats that 4m homes (incidentally, "usagigoya" means "rabbit hutch" and is a term Japanese people sometimes use to describe their cramped living quarters) are on fiber and should eclipse DSL lines by 2007 (currently receiving more that 20k new orders per week). More gasps from the audience when we saw pricing for the "Hyper Family" product (1Gbps) at EUR32 per month with ISP fee included. He is optimistic about video services, but is clear to stress that currently the driver for fiber adoption is broadband internet access and VoIP. Major audience gasps when Mr. Shinohara showed a video of a new bendable optical cable for use in domestic connections - the most common point of failure. The cord was knotted and bent in various ways with no loss of throughput.

UPDATE: Quote of the day (at least so far) came during the Q&A session, in which one audience member asked about payback period for the projects discussed in session one. No one took the bait at first, but to his credit, the man from BCE stepped up and said that various forecasting exercises had pointed to a range of 5 - 10 years, but payback would not necessarily be the prime determinant of the strategy - rather, it might be the behavior of competitors which drives the process. Nice to hear some frank admissions for once. Circle the wagons honey, this is our last stand.

Next is the turn of multi-utility Tre-For of Denmark. Notable points - fiber broadband access for the customer is EUR13 (the audience gasped) per month (no connection or installation fees). Notable points:

Broadband is a natural fourth utility to add to its legacy businesses, involving common processes and expertise. We should not refrain from action out of a sense of apprehension over the growth in knowledge which might be unleashed. Sticking to your past is not the way to the future. What if Nokia still only made boots and tires? What if IBM had stuck to making meat slicers?

UPDATE: A Platinum Club mega-uber value reader with more than a passing knowledge of Danish writes in to state that I either missed something or the company is not being entirely truthful. Apparently, the EUR13 figure relates to a basic monthly access charge, to which we must add a sort of "ISP subscription," at price points EUR20 for 1Mbps, EUR40 for 10Mbps, and EUR80 for 20Mbps.

Currently sitting through some interesting case studies from around the world, the first being from Vienna itself, which is looking to start phase one (50k premises) of a 950k home/70k SME deployment in the city this spring. Some seriously fascinating photos of robotically-deployed fiber in narrow sewer passages, as well as fiber in the sewer access pipes into individual homes and businesses.

As promised, the news from the Netherlands is that five of the six largest cable players (UPC, Casema, Essent, CaiW and Multikabel) have agreed to peer VoIP traffic between their subscribers (currently 450k), as I speculated here. This is a strong validation of voice peering as a commercial proposition, and for XConnect and Kayote in particular. It's early days and I don't want to get ahead of events, but I have to wonder how Liberty Global's other subsidiary operations (i.e., dominant cable players in France, Austria, Switzerland, Hungary, Czech Republic) and investments (Telenet in Belgium) might fit into this sort of arrangement longer term.

Tuesday, January 24, 2006

Fingers in the dike, revisited

Light Reading has an interesting piece on the latest FTTH developments with Dutch housing association Portaal. Stay tuned for another interesting announcement from the Dutch market at 10 AM CET tomorrow.

Heading off to Vienna in a few minutes, I guess I should be brushing up on my German, but somehow I don't think it's going to improve enough to get through this report on the German broadband market commissioned by T-Online. A summary in English here points to ICT accounting for 12% of German GDP by 2015, roughly double current levels. Notice also the admission that Germany is five years behind Sweden on the e-learning curve. I expect that this report is infused with its own complex layers of domestic political meanings, but it's also more grist to the mill in the growing politicization of the broadband phenomenon.

I'm proud to say that two years ago this week I started writing seriously (for clients) about the looming conflict between the free market and public/social policy in the area of broadband, and while I'm happy to have been right, I'm equally disturbed at just how quickly this has developed into a super-critical issue in some parts. Some very smart people Stateside are understandably getting mad as hell, thinking about what to do next, and at the end of this month they will have a lot more ammunition with the appearance of a new book by Bruce Kushnick, entitled "The $200 Billion Broadband Scandal." This may be one instance in which the Long Tail actually works in telcos' favor, as it may prove difficult to get the point across to a wider audience in the current media landscape. Then again, for a shrewd opposition politician eager to upset the apple cart, this could make the mother of all media opps.

Monday, January 23, 2006

Friday, January 20, 2006

Shameless self-promotion corner, part 37

I will be taking part in a panel at the Fiber to the Home Council Europe's conference in Vienna next Wednesday. There are some very interesting people coming to this event, and technology permitting, I will be making regular updates live from the conference.

Thursday, January 19, 2006

2P or not 2P2P?

Interesting times in France. Vivendi Universal is the world's largest music company, and yet the National Assembly, rather than adopting a protectionist stance (as some countries might, ahem), has written in an amendment in the transposition legislation for the EU Copyright Directive which makes filesharing legal for "personal use with no direct or indirect commercial purposes." The Association of Audionauts has proposed a levy of EUR2 - 5 on the monthly internet access fees for filesharers above a certain activity level. If enacted into law, this is going to be an interesting one to watch, as it seems to conflict with the general trend towards traffic shaping policies by the telcos. A number of user forums I have seen recently contain messages of distress from file sharers in the UK, whose ISPs have apparently analyzed their traffic flows and now throttle bandwidth back to dial-up levels anytime the ED2K or BitTorrent is switched on. How do telcos maintain the balance if a legal framework comes into being where file sharers naturally expect to be able to share files freely as long as they pay their "price of admission"?

A Platinum Club member writes in to point out that Wikipedia Germany has been shut down due to a court order of some sort. If anyone has any info, please share.

UPDATE: A reader writes in to explain that the legal dispute relates to a deceased German hacker whose real name is used on the Wikipedia site. The family has sued to have the site shut down on the grounds that this violates their privacy. It's all a bit silly when you can read all about it here (English). This is, of course, the US site of Wikipedia, where the same information is available, including in German. National litigation rendered nonsensical by a supranational web.UPDATE 2: Arse Technica has picked up on the story, albeit after TechDirt and P2PNet.net, both of whom had the decency to actually site their source.

I've documented many times the glee which the Dutch media seems to take in beating up on UPC. It has always amazed me that, as far as I can tell, none of this seems to find its way back to investors in the States. Well, the next published balance sheet may raise some eyebrows, based on this report out of the Netherlands. Professor Jan Kabel (whose surname amusingly means "cable"), an expert in Consumer Law in Amsterdam, says that under Dutch law there is nothing to stop UPC subscribers from simply sending back or throwing away the digital decoders the company is distributing, unsolicited, in an effort to migrate 2m customers over to digital. Another report details a visit made to a post office in Rotterdam, where the reporters claim to have seen vast numbers of UPC digital decoders either uncollected or returned by subscribers. This adds a new dimension to the term "stranded boxes."

Two mega-value readers point out the TescoVoIP assault. The phone is butt ugly, but the starter pack at GBP19.97 includes GBP5 of free calls, making it a GBP15 proposition for a USB phone and a number. Plus Tesco will be able to sell more broadband at point-of-sale, if anecdotes from the US are anything to go by. Most importantly, for people who live outside the UK and may not be familiar with it, I think it's entirely fair to say that the closest comparison to Tesco is Walmart. A helluva lot of people shop there because it is cheaper, there are more stores, they may not know any better, or there may be no alternative near home - or because they just plain like it. People who have never heard of VoIP will be buying this, because it is cheap and because it is Tesco.

Just over two years ago, Skype was introduced to the world, and those with any sense said, "Holy sh^t!" Now I am expecting that within the next two years, developing a VoIP/IM client will be a class term project for many high school students. A mega-uber value reader recently alerted me to VoIPStunt (for once, an honest product name) and VoIPBuster, both from the same company in Germany. He says quality is good, latency low, pricing attractive. The extraordinary has become commonplace.

UPDATE: The mother of all Palladium Club mega-uber value readers writes in with more info. The ultimate owners of the service are a Swiss company called Finarea SA, a company with a vast array of brands across Europe, covering both indirect access PSTN (carrier pre-select) and VoIP services. Apparently the modus operandi is brand fragmentation and market segmentation.

The Platinum Club mega-uber value reader in Oslo who reported some time back that he had been paid a visit by a salesman for Viken Fibernett, writes in to say that he has had another sales call, just to let him know what he'll be missing if he doesn't sign up. Apparently, he asked how long it would be before service launch, and the reply was, "Not long," because as it turns out Viken has opted for overbuilding, i.e., wrapping fiber around the existing overhead phone lines (a common practice with the Japanese fiber players). Media coverage last week claimed that Viken has already achieved a 50% take rate from households in their target area in Oslo, and the investment per household comes out at NOK15 - 25,000 ($2200 - 3700). This seems steep, as does the pricing for consumers, but nevertheless I'm intrigued to see how this plays out.

Well, as I expected, we may be off to the M&A races again in 2006, as EuroTelcoland strives in its relentless pursuit of Universal Mutual Annihilation. Belgacom CEO Didier Bellens receives both French and Flemish news coverage today, saying he's interested in either a broadband player in a neighboring country or a mobile player in a market with remaining growth potential. He concedes the company might be interested in Neuf Cegetel, France's number 2 DSL player, which has aspirations of expanding its MVNO presence beyond the SME space. This would seem to fit Belgacom's criteria pretty well on both counts. However, it's once again tempting to look at this and say that telcos prefer to continue buying network in the absence of really transformative ideas.

The stock has not responded well to the news (down 3% at this point), and separately, Reuters is reporting claims by one analyst at the company's analyst dinner in London last night that the company stated consensus EBITDA margin forecasts for the fixed line division in 2006 were too high. This is the second time this week a company has been linked to stories of "stealth guidance" (the other being Telecom Italia, which issued a press statement denying such allegations).

Wednesday, January 18, 2006

Skypeworld

I haven't written about Skype for some time, probably to the relief of many, but today's eBay results release contains a couple of interesting things. Communications (Skype) revenues were $24.8m in the 78 days since deal close. This is an annual run-rate of $116m, which is respectable in light of the company's estimate of $60m for the whole of 2005 when the deal was announced. Also of interest is that Skype is broken out in geographic revenue segmentation - fully 87% of Skype revenues are generated outside the US. This in itself is interesting, as the last set of figures I had from the company in April 2005 showed the US at just over 9% of Skype users. US users may punch above their weight in terms of paid services on Skype, but Skype still overwhelmingly relies on the rest of the world for revenues, which is quite a contrast from eBay itself (55/45 US/international) and many of its peers.

On a separate note, as a faithful tracker of Skype traffic via the RSS feed, I have been dismayed by the disappearance of the "minutes served" data in recent weeks. I am curious as to whether this is a) a technical glitch b) sensitive data which has been withdrawn for competitive reasons, or c) data which the new management considered to be suspect.

UPDATE: On the conference call it emerged that Skype averaged 190k new sign-ups per day, of which 39k (20%) were from China.

No press release yet on either site as far as I can see, but France Telecom's directories business, Pages Jaunes, has teamed up with eStara to deploy its web-based click-to-call functionality eventually across its entire advertiser base, which apparently includes 327k sites!

UPDATE: A mega-uber value reader in the Netherlands pings me to point out that online directory De Telefoongids already offers a similar service. Have a look at this link to a search query I did earlier today - for KPN's competitor Versatel. About halfway down the page, next to the third result, you should see the phrase "bel gratis" ("call free") in red, with the KPN logo next to it. Click it, and you will see that you have to enter your fixed line phone number, which means that this is basically a call-back service, I assume based on SS7, similar to what Web.de launched about four years ago in Germany (albeit that was a consumer subscription calling model). In this case it is apparent that KPN must be eating the cost of the call, even though the company does not own De Telefoongids (and even though the call is to a competitor!). In the case of Pages Jaunes' service, the description in the release seems to suggest that it is capable of being used either as a ring-back service like this one, or as eStara's conventional click-to-call-direct-from-the-site model.

EuroTelcoland is always at its most amusing when similar operator "hot topic" announcements follow one after another in short succession. We've seen this with VoIP and IP TV, and now it's the turn of FTTx. Bloomberg is now reporting (as of about 15 minutes ago) that DT CEO Kai-Uwe Ricke, in a speech in Berlin today, stated that DT would go ahead with its 50-city FTTC deployment regardless of whether it gets regulatory relief or not. So take that.

Not to be out-Motorola-ed by Cisco, Motorola has bought Kreatel, an IP TV STB company with some decent relationships in EuroTelcoland. I'm really curious to see how/if this fits in with Motorola's involvement in UMA product offerings.

I warned clients last year that 2006 would bring a number of pre-emptive fiber strikes by incumbents getting ready for the last stand. Today, totally and completelyunsurprisingly, France Telecom clarifies its plans, with a briefing on Thursday hopefully providing more insight. I am intrigued, however, by the use of the word "abroad" near the end of the release. Do they mean the overseas territories of France (like Guadeloupe), or something else?

UPDATE: A Prix D'Or haut debit mega-value reader in France writes in to confirm that the French version of the press release does not use the phrase "departement d'outremer," which would mean overseas departements of France. Seems the only conclusion we can reach is that FT is genuinely talking about FTTH in foreign countries.

Firstly, yesterday French regulator ARCEP reported that ULL lines in France currently number 2.228m, of which 592k (27% are fully unbundled). The progressive mix shift (a message I have been repeatedly stressing to clients) can be seen here. Also, this map of geographic distribution is quite interesting. ULL is still highly concentrated around Paris, but some regions are looking pretty porous (such as Pyrenees Atlantique, number 64).

Secondly, adding to KPN's woes is a brutal new offer from UPC, "Inruilweken," or "trade-in weeks." Basically, this is UPC bounty-hunting for KPN's DSL customers. UPC will buy out the customer's DSL contract for EUR50 in exchange for a bundled cable broadband/VoIP offering at EUR19.95 for the first six months, EUR29.95 thereafter. If that isn't enough, UPC is also throwing in a SIM card on its MVNO with EUR10 credit.

Monday, January 16, 2006

Dogged

A Diamond Cluster mega-uber value reader tells me that his office, which is served by Bulldog and normally runs Skype on multiple PCs (and where there is no policy to disable Skype, as he's the boss) has had a complete Skype failure today. Are any readers out there who are Bulldog customers and experiencing the same thing? Here's his description of what's happening (or not happening, to be more precise):

"Skype fails to login, reporting that the username/password combination is 'not recognised'. Watching the status bar at the bottom of the screen, and running a trace on data going in and out of the PC, I can see that whatever Skype is attempting to connect to is not responding.I have confirmed that the password and username are correct by succesfully logging in Skype from my home network."UPDATE: Another mega-uber value reader writes in to say that he has been using Skype all day with another user who is a Bulldog customer, with no issues whatsoever. UPDATE 2: The original reader says now the problem is resolved, several hours after it began, but without any changes of any sort on his end. Throughout the outage, other VoIP clients and the office Asterisk phones also worked. (I consider this particular reader to be in the high technical competence league, by the way.) Just for reference, the reader has a business DSL subscription with static IP address from Bulldog. I would still be interested to hear from anyone else out there who has experienced similar episodes, with either Bulldog or Skype.

The Dutch market never fails to shock and awe. Daily paper Trouw today has a blockbuster on cable VoIP in the Netherlands. Multikabel in the north has 50k subs, which is more than 15% market share within its comparatively small footprint. UPC is over 10% in its footprint, and Essent has taken 2.5% of the market in-region without promotion. Altogether it looks like the top four players have over 450k households on VoIP, which looks to be about 6% of total households in the Netherlands. What if they were to make on-net calls between their various customers free (i.e., voice peering)?

To put all this in perspective, KPN said back at Q3 that it estimated mobile-only households at 15% of the total, and growing by one percentage point or so each quarter. Let's assume that we're around the 16 - 17% mark currently. On top of this we now have 6% of households with cable VoIP, but no PSTN line. I assume there is a fair amount of overlap between cable VoIP and mobile-only households (and this will probably intensify as UPC pushes its MVNO), but I feel it would be safe to assume that around 20% of Dutch households currently have no PSTN service.

Yesterday I had coffee with Peter Cochrane, former CTO of BT. He had a lot of interesting and provocative (well, not to me, but probably to a lot of people) things to say about what telcos in general could have done five or ten years ago to position themselves to deal with the situation which has evolved. We both lamented the death/dearth of internally-generated innovation in telcoland. I hope to interview him at some point in the future.

On the subject of innovation, here's some weighty weekend reading from the EU on the subject of innovation in Europe, as highlighted in this morning's Financial Times. For those interested, it's worth spending a bit of time looking at the links on this main page, which include some interesting break-out assessments of topics such as consumer attitudes towards innovation and drivers of innovation. The summary findings show Europe led by Sweden, Switzerland and Finland, with Spain, Italy and Portugal all coming in well below the EU25 average. On a more depressing note, at current rates of change, new accession countries may not catch up with the EU25 in the foreseeable future, and the EU25 as a whole may take 50 years to overtake the US. If there is perplexity in some quarters as to motivators for alternative broadband projects, maybe some answers can be found here.

For those who might be interested, pact, the trade association representing UK independent film, animation, television and interactive media content creators, has put out a detailed report covering issues facing content creators in a fragmenting television landscape. Among their proposals to protect the interests of free-to-air broadcasters (and obviously the content generators who supply them) is a royalty fee payable by platform owners on the basis of users with PVR functionality.

After the hammering EuroTelcoland took yesterday, perhaps a little comic relief is in order, courtesy of a Canadian Palladium Club mega-uber value reader. I guess the scenario painted here only stands to get worse with Google in the picture now.

Thursday, January 12, 2006

FUDdy duddy

Dutch daily Trouw has an expose (Babelfish English translation) today of efforts by Dutch cable association Vecai to petition the Dutch housing minister to bar five housing corporations from taking a 33% stake in the Amsterdam FTTH project. While the article highlights that Vecai and UPC believe that fiber investment is unnecessary as the coax network is wholly adequate for the foreseeable future, the author also points out something I wrote about in November, that UPC's French subsidiary Noos is trialling FTTH in the Paris area.

Looking a bit deeper into the background uncovers that 38 communities (c. 600k households) surrounding Paris laid 360km of dark fiber under the auspices of SIPPEREC, literally the Intercommunal Syndicate of the Periphery of Paris for Electricity and Communications Networks. Some of this fiber was subsequently leased to Suez unit Lyonnaise Communications, which, of course traded under the name of Noos and was subsequently sold to UPC in 2004. Call me churlish, but it looks as though UPC, fighting municipal fiber in the Netherlands, is only too happy to exploit it in France.

Hold on to your chapeaus, here's an update on France Telecom. A Prix D'Or mega-uber value reader writes in to alert me to a passage from an article on FT in today's Les Echos. In the original it apparently says:

This translates as: "The migration to internet telephony is faster than expected. 'It made up about 15% of traffic at the end of 2005 and could increase to 40% in 2006, while it is below 1% in the British residential market,' explains (France Telecom's) Michel Combes."

While Mr. Combes does not define "traffic" in detail, the last set of statistics from regulator ARCEP, covering the Q2 2005 period (scroll down about 1/3 of the way), show that VoIP, at 1.8bn minutes, accounted for 7% of total outgoing fixed line traffic in Q2, up from 5.7% in Q1. It would seem that what he is talking about is outgoing fixed line minutes, in which case VoIP's proportion doubled in the space of six months, and I think we're talking about a quarterly run rate of around 4bn minutes at the end of the year.

The good men over at VoIP User have crossed the 500k call barrier. While obviously not a major contributory factor in France Telecom's woes, this is nevertheless an impressive result. Recall that VoIP User was set up by two friends as a project to create a space for those interested to try out VoIP without the community incurring any costs (outbound call costs are offset by revenue from incoming calls to premium-rate numbers, so the community is "minute neutral"). The community is nearly 20k in size now, and gaining about 40 new members per day. And people said it would never work!

Long-time Platinum Club mega-uber value reader and virtual buddy David Jackson, the hardest-working man in financial blogdom, continues his relentless disruption of the traditional stock research model, now expanding his free conference call transcript service to 400 companies (and counting).

Why is this important? If, like me, you are a beleaguered lone telecom analyst working in London and have more than a passing interest in companies like Google, eBay, Yahoo!, Microsoft or Apple, when earnings season begins, you basically have a few options:

Stay up to listen to the conference call at home (usually at least 10:30 PM here);

Come in the next day and make time to listen to the replay (I work in an open-minded firm which appreciates the way I go about my work, but I can envisage some firms where the head of research or sales would probably say, "What does Google have to do with European telecoms? Get busy and put out another hold note on OTE!");

Subscribe to a transcription service (this is the expensive option).

We have a group subscription to CallStreet, and I don't even want to know how much it costs. I'm lucky to not have to shoulder the cost myself, but what about independent analysts, consultants, or individual investors? Moreover, as David himself points out, typically you can't quote from these commercial services' transcripts without express permission. This initiative appears to solve two problems, for free.

As readers may recall, one of my areas of continual interest is in how decentralized information flows can disrupt my own industry. Just as voice and content at the edge of the network can pressurize telcos, I continue to believe analysis and opinion-shaping in a free environment at the edge of the markets has the potential to obliterate traditional broker research as we have known it.

Already my impression is that many fund managers spend more time reading blogs and forums (by the way, here's an interesting search engine devoted to indexing forums) than traditional research. Glancing at my Bloglines newsreader, I can see that prominent group blog Boing Boing has 37,965 subscribers (for those who don't use RSS that means Bloglines users who have opted-in to the feed), Engadget has 33,697, and Om Malik, a one-man show who does, let's remember, have a day job, has an entirely respectable 3,491. That's only Bloglines users. Don't forget users of Newsgator, MyYahoo!, Google Lens, and all the other readers who have simply bookmarked the sites.

We're talking hundreds of thousands of regular readers, I think, for some of these sites. These will continue to gain momentum and mindshare, and others will join them, while free and open resources like Om's Broadband Wiki can supplement the data collection and analysis process. David's conference call service is another step towards decentralizing and democratizing the analysis process. If, as should be the case by law, sell-side analysts are no longer privy to information about companies which is not in the public domain, then (intrinsic quality and imagination aside) I think the list of what separates "us" from "them" is growing shorter by the day.

2006 is a four-letter word for France Telecom. Having sold the market on a 3 - 5% pro forma revenue growth story for 2005 back in the summer when they were [coincidentally] raising money to buy Amena, FT suddenly cut this back to "almost 3%" in November, and yesterday further scaled this back to "2 - 3%." For 2006 the expectation is 2%, though given recent history, I think the market may be inclined to take a very cautious view of this. My chief economist tells me EU25 CPI for 2006 is expected to be just under 2.2%. Unsurprisingly, the share price is trading down by 7.9% at this writing, with volume already pushing 5x the recent daily total. Moreover, almost every other company in the European sector is down well over 1% in sympathy (one notable exception being Iliad...).

The market may be inclined to view the second haircut in as many months as a credibility issue. I tend to think it's more a fundamental difficulty in forecasting rapidly eroding fundamentals across multiple markets in a very complex and large company. If so, this doesn't surprise me in the least, and this will not be the last case we see in 2006. The French market alone is enough to keep any company fully occupied. Free and Neuf Cegetel are both turning up the VoIP and video heat, and with the socialist Mayor of Paris (a potential Presidential hopeful) and Mr. Chirac now talking the virtues of fiber, you have to wonder how much of the domestic business plan has to be written in pencil. Never mind, three-quarters of analysts are still positive (we are not), with price targets on average 25% above the current share price (some as much as 50%). Plus ça change...

Wednesday, January 11, 2006

Converging on divergence

Late last year I wrote a couple of times, both here and in notes to clients, that it would be interesting to observe how nominally "integrated" telcos would spin the convergence topic in 2006, because for such companies it highlights fundamental organizational silos with irreconcilable conflicts. Here's one case (I can't find an English version on the site, though I was emailed one earlier today). In the press release, T-Mobile Germany's MD remarks, "Our sister company within the Group, T-Com, has provided us with a great deal of support in the development of T-Mobile@home, which is one of the major convergence products of Deutsche Telekom."

Now, this is an add-on service for T-Mobile customers, under which they can make discounted calls to the fixed network within a 2km radius of home (by now a familiar scenario in Germany, which makes a product like this inevitable for T-Mobile) for an additional €4.95 per month. Within the defined home zone, it also offers a fixed line charge for the calling party on incoming calls, and for Friends & Family numbers within the home zone, calls are free when using speed dialling. Moreover, a second SIM in a separate handset dedicated to a "HomePhone" function, bearing a fixed line phone number, operates like a sort of PBX, ringing up to two other handsets within the 2km home zone.

All of this sounds really cool, but I'm not sure it's necessarily a converged service as such. No doubt, there's some fancy signalling going on between the fixed and mobile networks, and I assume that the two are sharing incoming call revenue to the fixed number (or maybe it's all going to the fixed unit as a political concession, or perhaps T-Mobile is simply buying numbers from T-Com - I will have to check this out). However, it seems like precisely the sort of thing that would make even the most stalwart T-Com customer seriously consider ditching the fixed line for good. I guess the one saving grace is that German broadband is 98% ADSL (despite increasing aggression from the cable players), so for the foreseeable future, anyone with an interest in an internet connection is going to be stuck with a copper line. On the other hand, and this is going to be interesting to watch, I feel that products like this and the UMA offerings (some variant of which T-Com will also introduce) are going to drive consumers to increasingly question the rationale for continuing to pay a PSTN subscription in order to get broadband.

In the DT example, if my mobile phone can be used or called at fixed line pricing within my home zone, on the basis of a fixed line number which maps to my mobile, then what the hell do I need a real fixed line connection for? If two units of the same company are working together to deliver the service, and I am a customer of both, then aren't they to some extent selling me the same thing twice? In the case of BT Fusion, if my mobile handset and my broadband connection are working together to give me fixed line pricing at home, then isn't my PSTN number redundant (perhaps with the exception of incoming calls - but that should be my choice). It was highly professional of the T-Mobile executive to give propers to T-Com in the press release, but I smell trouble ahead.

Tuesday, January 10, 2006

Don't blink or you'll miss the next video search announcement

A Palladium Club mega-uber value reader alerts me to AOL's acquisition of Truveo. Part of me wonders if this is AOL telling Google "You may be a shareholder, but we're in an open relationship." The other part of me wonders who takes out Blinkx. Keep those IPTV deployments rolling, telcos!

How much of this is political grandstanding and one-upmanship, I couldn't say, but a Platinum Club mega-uber value reader alerts me to more pro-fiber rhetoric coming out of France, this time from Mr. Chirac himself, coming one day after the Paris mayor fired his salvo. It is also unclear whether Mr. Chirac is referring to a single, open national fiber network, or something more nebulous.

Cynics might argue that France is hurting from the Olympics decision (even if it might not have been a straightforward affair), and that politicians are trying to assuage a general sense of social malaise using blue-sky diversionary tactics. A more charitable (and I believe reasonable) view would be that politicians increasingly grasp the long-term social and economic (and therefore political) impacts of universal access to true broadband (over to you, my American brethren - thanks for the heads-up Sascha).

It's fascinating to contemplate a time in the future when a number of European cities/regions/countries with open fiber networks (let's say Stokab, Amsterdam, Paris, et al) federated by means of all the long-haulfiber in the ground here.

As a long-term resident of the UK (and one who is, unusually, not averse to the French), the other impression I get from this and the developments in the Netherlands is that the UK generally has lulled itself into a dangerous sense of self-satisfaction with the "turnaround" in the broadband market. As I've said in the past, I suspect that if the UK tabloid press ever properly presented the story of how the French "surrender monkeys" are already running circles around consumers in the UK, we'd have a much different political situation on our hands, particularly in the context of the UK's apparent decline in certain aspects of competitiveness (see page 6). Given past public commitments to this issue, how long can this continue?

Monday, January 09, 2006

I seem to be on every conceivable telecom mailing list on the planet, in some cases twice (due to the obvious challenges involved in getting all four letters of my surname in the right order). This came today. Wow, only EUR2,700 for the Platinum Package. Interestingly, this conference is being held in Berlin, the site of the historical stalemate between two different ideologies. For those who may be too young to remember, the wall eventually fell...

Sunday, January 08, 2006

Liberte, egalite, et fiber

In a series of client meetings at the end of last year, one section of my presentation which provoked one of the strongest reactions was a discussion of the Amsterdam FTTH project. Invariably, clients were initially baffled as to why a city government would view investing in broadband infrastructure as a worthwhile activity. When I explained my take on Amsterdam's agenda (developing more efficient social service/government service delivery, fostering economic development, increasing economic competitiveness), they got it immediately - every single one.

Many agreed with me that this redefinition of what, and more importantly, WHY broadband is, could mark an important new chapter in the European telecom market, and that this issue merits close attention. I usually followed this topic with a discussion of Danish and Norwegian utility fiber projects and municipal projects in the French regions. Well, things in France seem to have escalated somewhat. A Platinum Club meg-uber value reader alerts me to an article in the Nouvel Observateur a few days ago, in which it appears that the Mayor of Paris has fiber aspirations. The article refers to a city-wide network, and also seems to suggest that the Mayor has aspirations of offering free narrowband internet access and local telephony to residents of more modest economic means.

Wednesday, January 04, 2006

The 2oo6 new breed

I'm having a few extra days' holiday on the daddy track and am struggling to get into the swing of things in the new year, but way up in the frozen North, Thomas Anglero is on fire. I particularly like this post. Check him out, you won't be sorry.

Tuesday, January 03, 2006

Quality listening

I have just been listening to a very listenable edition of the BBC World Service's "Go Digital" program, dedicated to online gaming, and featuring, among others, the excellent Alice Taylor. I assume the replay/podcast will be available imminently.

2006 is going to be a fascinating year. All I can say to this story is that you might as well call out the paramedics to Microsoft's campus, because furniture and executive blood pressure will be soaring this week. Also of interest is a white paper I received from Flarion a few minutes ago (not on the website yet, apparently) entitled "Trains, Planes and Automobiles", which discusses the results of several trials of high speed connectivity. Among other facts, there is reference to aviation backhaul with a cell radius of 360km, with 2Mbps downlink connections maintained at speeds above 300kmph. I'd be very surprised if IPWireless didn't also have an aviation solution in the works.

Last year we saw French radio brand NRJ become an MVNO, and now a German mega-uber value reader alerts me to the fact that broadcaster ProSieben has launched a co-branded version of ICQ (still a leading IM brand in the German market). My German is pretty scheisse, but it appears as though the proposition for the user centers on social viewing, and communities of interest developing around certain series and stars.

Happy New Year, mega-uber value readers! I think this is going to be one of the most interesting and difficult years ever for EuroTelcoland, so stay tuned. Though barely three days old, the new year is off to an interesting start, and readers who find themselves unable to resist looking at car crashes should have another look at the Dutch market, a reliable source of EuroTelco pain. The Nuenen FTTH trial, an early barometer of demand for fat pipe non-telco triple play services, had a deadline of 31 December for subscriptions for paying customers. The final result? Fully 80% of residents opted for staying on as paying customers, despite a lot of targeted marketing from both KPN and UPC, the latter of which also cut triple play pricing in the local market to respond to the fiber threat. Seems the message is "better the devil you don't know." So much for consumer inertia.